Insolvency and Restructuring International April 2008
Insolvency and Restructuring International articles are now available online to members of the IBA Section on Insolvency and Creditors’ Rights. To access the articles in this issue, you will need to sign in using your IBA username and password. Access login details.
The use of sealing and gagging relief in complex insolvency proceedings involving the investigation of fraud and discovery of hidden assets
Martin S Kenney
Fraud and insolvency can be vexing. However, there are a number of tools available to an insolvency professional who is faced with an insolvent estate that has been made the victim of grand malfeasance or fraud. In the context of such an insolvency, the discovery and preservation of concealed assets linked to an estate is the focal point of the entire process. In general terms a liquidator (or other insolvency officeholder) is vested with broad powers that can be exercised towards the achievement of that objective. The focus of this article is on the use of certain extraordinary ex parte measures to locate the fructus sceleris (the fruits of fraud) optimally. The concealed asset discovery remedies described in this article are available in most British Commonwealth jurisdictions and in some jurisdictions in the United States.
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The interface between fraud and insolvency – how insolvency laws can assist in finding and recovering the proceeds of fraud
Laurence Katz and Adam Harris
The following hypothetical scenario is designed to illustrate how cross-border insolvency laws can supplement the tools available to an ordinary litigant seeking to find and recover the proceeds of fraud.
X Limited was incorporated in and, until it ceased trading in early 2006, operated out of premises in South Africa. Its sole shareholder and former sole director (A) emigrated from South Africa to London 18 months ago. A now lives and works in London where he resides in a substantial residential property which was acquired in early 2006 and which is registered in the name of an offshore company. During A’s term of office between 2004 and 2006, finance was provided to X Limited by a number of banks in respect of sham transactions. The finance obtained was then transferred by A away from X Limited to the purported counterparties (companies controlled by A). A has left no assets in South Africa. In these circumstances, the South African court is unable to exercise its bankruptcy jurisdiction in relation to A. It would also not be able to exercise jurisdiction in a civil claim by the liquidators or a creditor or any other party (even if the cause of action arose within its jurisdiction) where A does not reside in or own property in South Africa and cannot be arrested to confirm the jurisdiction which the court has by virtue of the cause of action arising.
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Powerhouse: has the power really gone?
Marika Chalkiadis
The eagerly awaited Powerhouse decision is out (Prudential Assurance Co Ltd v PRG Powerhouse Ltd [2007] EWHC 1002 (Ch); [2007] BCC 500). Landlords around the United Kingdom are happy. The court has agreed with what they have always believed – that a company voluntary arrangement (CVA) that singles them out for a treatment different to others, and that has the effect of ‘cramming down in mass’ their otherwise strong proprietorial rights, is unfairly prejudicial to them. But all is not as it first seems. The decision does not condemn these CVAs. It is a decision particular to its own facts: specifically, that some but not all of the landlords affected by the CVA had the benefit of, and were losing parental guarantees that they could have relied upon in, a liquidation of Powerhouse, but they were getting nothing more than other creditors who would have received nothing on such a liquidation to compensate them for that loss. This set the scene for the unfair prejudice finding.
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Punching your ticket to the high-speed international insolvency train
Scott K Brown
In 1996, Professor Jay Westbrook warned bankruptcy lawyers:
‘Like the wail of a high-speed train in the night, the field of transnational and comparative insolvency has come suddenly upon us, transformed from a distant possibility into a surrounding fact… More and more cases in United States bankruptcy courts have an important foreign element.’
For example, over the past several years I have dutifully attended various seminars on international bankruptcy law, but I always leave wondering how anything the presenters have said can possibly relate to my practice. I confess that I do not know the difference between pure universalism, modified universalism and territorialism. Even the phrase ‘international bankruptcy law’ can be confusing. I have seen others describe it as ‘international insolvency law’ or ‘transnational bankruptcy law’ or ‘multinational bankruptcy law’ or ‘transnational insolvency law’ or ‘cross-border insolvency law,’ or – well, you get the point.
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Bankruptcy court rejects Cayman proceedings of Bear Stearns hedge funds
Daniel Glosband
The refusal by a US bankruptcy judge to provide assistance to the Cayman liquidation proceedings of failed Bear Stearns hedge funds raises the question of which country should conduct the bankruptcy of a hedge fund that is registered offshore but conducts all of its business in the United States. If funds choose to file bankruptcy in their country of registration, will the United States Bankruptcy Court acquiesce and assist offshore proceeding by staying US litigation and protecting US assets? If the US court demurs, must the funds seek protection in US bankruptcy proceedings?
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Are you ready for the crash?
John Willcock
Has your country got an insolvency regime that can handle big, cross-border restructurings with complicated capital structures?
This is the question troubling bankruptcy and restructuring professionals as they grapple with a surge of work in 2008 stemming from the US subprime crisis and resulting credit crunch.
European countries in particular are hurrying to make sure their insolvency systems are as up to date as possible. Here we provide a brief overview of the main jurisdictions and what changes might be imminent, contrasting developments in Germany and the United Kingdom.
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Implementation of Directives on the reorganisation and winding up of credit institutions and insurance undertakings in Finland
Pekka Jaatinen and Lasse Luukkainen
The Finnish insolvency regulations have been revised recently. The former Finnish Bankruptcy Act (Konkurssisääntö) (31/1868) entered into force as early as 1868. An overall revision of the Bankruptcy Act has been under way for decades. Naturally, the bankruptcy legislation has been amended and revised several times over the past years but, until recently, the former Bankruptcy Act was the cornerstone statute containing the fundamental provisions regulating bankruptcy proceedings. Finally, in December 2003, the Finnish Parliament passed the Government Bill on the new Bankruptcy Act. The new Bankruptcy Act (Konkurssilaki) (120/2004) entered into force on 1 September 2004.
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UNCITRAL adopts legislative guide on secured transactions: annex on intellectual property secured financing to be addressed in May 2008
Jeffrey D Dunn
The resumed fortieth session of the United Nations Commission on International Trade Law (UNCITRAL), meeting on 10–14 December 2007 in Vienna, Austria, approved the adoption of the UNCITRAL Legislative Guide on Secured Transactions (the ‘Guide’). This accomplishment ended more than five years of proposals, discussions and revisions through UNCITRAL’s Working Group VI. The objective of the Guide is to remove legal obstacles to international secured credit, and improve the availability and lower the cost of credit by assisting countries (‘States’) in their adoption of modern secured transactions laws. The Guide is not intended as a treaty or model law, but instead consists of a series of recommendations and commentary. Issues addressed in the Guide include creation of security rights, effectiveness of security rights against third parties, establishment of a registry system, priority of security rights, rights and obligations of the parties to security agreements, rights and obligations of third-party obligors, enforcement of security rights, acquisition financing, conflict of laws, transition, and the impact of insolvency law on security rights. Working Group VI coordinated its work with UNICITRAL’s Working Group V on Insolvency Law with respect to the treatment of security interests in insolvency proceedings.
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Key objectives and fundamental principles of the UNCITRAL Legislative Guide on Secured Transactions
Spiros V Bazinas
At its 40th session, which was held in two parts, one in June/July and the other in December 2007, the United Nations Commission on International Trade Law (UNCITRAL) finalised and adopted the UNCITRAL Legislative Guide on Secured Transactions, which deals with proprietary (as opposed to personal) security interests in movable (as opposed to immovable) property (‘the Guide’).
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The 1997 UNCITRAL Model Law on Cross-Border Insolvency – ten years after
Barbara Pogacar
The continuing global expansion of trade and investment is also reflected in the increasing occurrence of cross-border insolvencies. However, national insolvency laws have to a far extent not kept pace with this development and are often ill-equipped to deal with cases of a cross-border nature. Fraud by insolvent debtors, especially by concealing assets or transferring them to foreign jurisdictions is an increasing problem. Therefore, the close cooperation across the borders is to be sought in order to protect the assets of the insolvent debtor for the benefit of the creditors and facilitate the handling of cross-border insolvency cases.
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